New York State’s Empire Zone program has come under fire for the tax breaks it offers to businesses, but a local economic leader has downplayed the significance of the critiques for Dutchess County’s own tax-relief system.
In a report released earlier this year, A.T. Kearney, a management consulting company hired by the state to evaluate the Empire Zone program, chastised it for “good economic development intentions gone wrong.” In audits over the 21-year lifetime of the Empire Zones, the state comptroller’s office has also called for improvements to state management of economic development.
Criticism of the program has gotten louder in recent months. About 3,000 letters were mailed to certified zone businesses. Empire State Development sent the letters notifying the companies that they had fallen substantially short of their jobs or investment projections for 2005. More than 100 of the recipients are in Poughkeepsie’s Empire Zone and received letters for failing to meet either investment or job-creation targets.
The Empire Zone program was originally established in1986 to address pockets of extreme poverty in the state by encouraging creation of jobs and attracting new businesses. Benefits for certified businesses include income, property and wage tax credits, sales tax exemptions and utility rate reductions; in some cases, the relief can entirely eliminate tax liability. To qualify, a business must be located within a zone or be a “regionally significant” project. It must be approved by state and local zone officials and demonstrate that it will create new jobs and investments.
State reports have found much room for improvement: Until now, little attempt has been made to audit companies or hold them accountable to their promised targets for job creation and investment. Critics assert that the program, with little oversight, has been manipulated for political gain. Over the years, the state legislature has relaxed standards, allowing 10 original zones in 1986 to proliferate to 82 zones across the state in 2007, an annual growth rate of 11 percent. Today there are more than 9,800 certified zone businesses. In the past, certain loopholes have allowed “shirt-changing,” or the practice of changing a company name to appear as a newcomer to the state, qualifying for the most generous benefits.
The letter warning companies that they had fallen short of their established goals represented the first time in the program’s history that businesses were told they must make progress to continue reaping the benefits, according to a press release from Empire State Development. Companies receiving the letter failed to meet at least 60 percent of their goals in investment or jobs for 2005, as measured by annual reports they were required to file.
But Anne Conroy, executive director of Dutchess County Economic Development Corporation (DCEDC), said the recent critiques were not particularly significant for Dutchess County. Merely becoming zone-certified, Conroy said, confers no tax relief: only performance does. Tax breaks depend on a company’s actual achievements in investment and job creation, as determined by tax returns evaluated by the department of taxation and finance.
“Businesses on the list may have fallen short, but there are good reasons for that,” Conroy said. “No business expects to not to succeed,” said Conroy, “but sometimes they don’t. Or sometimes they’re just static.”
Local economy sluggish
“I would love to hire more people,” said Vincent Coppola. Cappuccino’s, the restaurant owned by the Coppola family, was on the list for missing its 2005 job-creation targets. “But if I hire more people, where am I going to get the money?” he asked.
Coppola, whose restaurant moved to its Route 9 location in the Town of Poughkeepsie in 1990, complained of a lackluster local economy. There aren’t enough jobs being created in the area, he said, to boost the overall economy and help his restaurant grow.
“We all need tax benefits because the small, local business people are getting squeezed out of here,” he said. “A lot of people in the area would be in big trouble without those benefits – it would be very difficult,” he said.
Poughkeepsie qualified for Empire Zone designation in 1994. IBM’s downsizing made Poughkeepsie eligible under criteria for “sudden and severe” economic distress. Other data shows a pocket of poverty in Poughkeepsie. The per capita income in the City of Poughkeepsie was $16,700 in 1999, according to Census data from that year (the most recent available), about 30 percent less than the county and state averages. In 1999, 22 percent of residents in Poughkeepsie were below the poverty level, compared to 14.6 percent in the state.
Of the 355 certified Empire Zone businesses in Dutchess, more than 256 are located in the City of Poughkeepsie. Extensive criteria for conferring tax breaks differs by location within the zone. For example, retail businesses can be certified in the Main Street corridor, but outside the corridor, they are not. Other incentives encourage businesses to locate in downtown Poughkeepsie, an area that has struggled in recent decades.
Essentially, any business located in the zone can qualify for zone certification, but because substantial paperwork is involved, Conroy said they are unlikely to apply unless they believe they will benefit. “They’re typically new, or planning expansion, or moving in from outside the state,” she said.
Joseph Bonura Jr. said his family would have reconsidered locating its new restaurant, Shadows, and catering facility, the Grandview, on the Poughkeepsie waterfront were it not for the Empire Zone tax breaks. The Poughkeepsie Grand Hotel, another Bonura-family enterprise, appeared on the list for falling short of its investment target and received a letter last week. Joseph Bonura Sr., who oversees the Grand Hotel, confessed he was unsure why he’d received the letter, or how the hotel had fallen under its investment goal for 2005.
But Bonura Jr., who also sits on the board of the DCEDC, said that given the high cost of insurance and taxes, Empire Zones were necessary to keep New York competitive relative to other states. New York would lose businesses to its neighboring states, he said, if it weren’t for tax relief offered. “If (Empire Zones) were to go away, the state … would suffer in regard to other states,” he said. At the same time, he acknowledged the importance of accountability: “If people aren’t being audited carefully then that’s a problem,” he said.
According to Conroy, one weakness in the state’s analysis of underperforming businesses is that self-reporting on the program’s annual forms is not always accurate; tax records, used to distribute benefits, are much more so. “Incentives are distributed according to accomplishments, jobs and investments,” she said. They are not related to projections.
Among its suggestions, the Comptroller’s report recommended that Empire State Development decertify businesses for not meeting goals. But general municipal law protects businesses from decertification that results from economic circumstances beyond their control. Acknowledging that some business might attempt to blame faltering economies, the report finds that Empire State Development’s lack of monitoring, nevertheless, presents an opportunity for taking advantage of the program. “While we agree that some businesses may assert that their failures are due to such circumstances, (Empire State Development’s) lack of monitoring provides an opportunity for businesses to continue to be certified while not achieving their performance goals,” the report finds.